Top Reasons Borrowers Don’t Qualify for Hard Money Real Estate Loans

I receive calls everyday from Real Estate investors wanting to borrow private money (hard money) through my company and more often than not, I have to tell them no. Inexperienced borrowers often make the same mistakes so let’s review.

1) No down payment or too small of a down payment.

Private lenders require a minimum of 35% down most of the time. If you are looking for a no money down loan or very little money down, the only place to go is to either friends/family/business associates willing to co-invest with you or to the banks. Regular banks have a product from the Federal Housing Authority called FHA where you can buy a house for as little as 3% down. However, these loans are difficult to qualify for and can only be used for personal residents and not for investments.

2) The purchase price and loan for a home is just too small.

In places like the San Francisco Bay Area of California and New York City, this is usually not a big problem but private lenders do not like to make loans for less than $100,000. If you are looking at properties for sale under $100,000, you should probably look elsewhere. Private lenders make their money on the points and if a loan is $100,000 or $1M, the amount of work is the same.

3) Borrower is trying to buy at auction or at the courthouse.

Auctions require all cash offers and almost never allow for financing. If you are buying at the courthouse steps, a private lender cannot help you because the home will not be able to qualify for title insurance until the trustee’s deed is delivered. (usually 1-3 weeks after the house is purchased)

4) Borrower is buying an REO or short sale and has made an “all cash” offer.

90% of the time, banks (who sell almost all short sales) award a purchase contract not to the buyer offering the most money but to the buyer that can close the fastest. If a borrower states they are making an all cash offer and they really need to borrow some of the money, the bank will stop the sale and move to the next person in line that really has the cash to close.

5) Borrower thinks their property is worth more than it is.

This happens most often with refinancing. Please, if you are looking to get a loan on your real estate, spend a few minutes looking on websites like Zillow and see what the value really is. If every house within 6 blocks of your home is selling for half or less than what you think your house is worth, you are probably wrong and won’t qualify for a loan.

6) Borrower is buying in an area with an extremely high amount of foreclosure sales.

Unfortunately, even if a borrower is getting a great deal, it will be very difficult for them to resell their property at a higher “retail value” even if they fix it up and a new buyer wants it. Why? The reason is that banks require appraisals and if there are no retail sales at the higher price near the subject property, the house will not appraise for the purchase price so the buyer won’t get enough of a loan to buy your house.

Now that you know what not to do, if you still think you can qualify for a private money/hard money loan in California, Nevada, or Arizona, go to our website.